BIRZEIT, West Bank, Feb 27 (Reuters) - Israeli forces opened fire and killed a Palestinian they were seeking to arrest in the occupied West Bank on Thursday, after the man had barricaded himself inside his house, Reuters witnesses said.

Israeli soldiers and police surrounded the home of Muataz Washaha, 24, and called on him to turn himself in. Although his relatives came out of the house, he refused to leave.

After several hours of standoff, the Israeli forces knocked down part of the building with a bulldozer and opened fire. Washaha's body was found shortly afterwards.

An Israeli military statement said that Washaha had been wanted for "suspected terror activity" and that the forces, which later found an assault rifle in the house, were operating under the premise that he was armed.

Two other suspects were arrested at the scene.

A Reuters witness said that no shots were heard from inside the home before the Israeli forces opened fire. Palestinian sources said Washaha was affiliated to a small leftist faction, the Popular Front for the Liberation of Palestine (PFLP).

The Palestinian government in the West Bank condemned the killing. "The assassination of martyr Washaha represents a new violation of human rights. Occupation forces deliberately killed martyr Washaha," it said in a statement.

Amnesty International published a report on Thursday which said Israeli forces were using excessive violence in the West Bank, killing dozens of Palestinians over the past three years in what, they said, might constitute a war crime.

The Israeli army dismissed the allegations, saying security forces had seen a substantial increase in Palestinian violence and that Amnesty had revealed a "complete lack of understanding" about the difficulties soldiers faced.

Although their decades-old conflict has become a low-intensity confrontation, violence still flares regularly, with Palestinians accounting for the vast majority of casualties.

Israel and the Palestinians resumed direct peace talks in July after a three year break. The Palestinians seek an independent state in the Gaza Strip, East Jerusalem and the West Bank, territories Israel captured in the 1967 war. (Reporting by Ali Sawafta; Writing by Maayan Lubell; Editing by Crispian Balmer)